Selling a home for less than the amount which the current owner owes the mortgage company is called a short sale. It is considered, when the borrower is not in a position to repay these dues. When there is an advertisement of a house for short sale, it is presumed that the home is in pre-foreclosure state, although it need not always be the case.
Real Estate Short Sale Process
Contrary to its name, a short sale is a cumbersome and lengthy process involving a lot of legal and financial aspects. It starts with the owner approaching the lender for discussing the chances of a short sale. Then this seller issues an authorization letter about the release of information regarding the loan and the property, to the buyer or to an escrow agency, if there is one. The settlement statement will also be reviewed by the lender, mentioning the proposed selling price, the amount left to be repaid, itemized expenses, and the like.
Following that, a hardship letter is completed by the seller, containing a description of all the financial difficulties faced by him. These are also required to be validated by the lender. This is important from a buyer's point of view. A broker is then contacted by the lender and the purchase agreement is scrutinized. This helps the lender decide if the agreement is reasonable and whether the real estate commission is acceptable. The scrutiny of the proposal can take a lot of time and it could be months before the seller gets a response from the lender.
Things Recommended for a Short Sale
There are a few unwritten rules for a real estate short sale. Keeping them in mind will help you in making the process smooth.
- First and foremost, speak to a trained and experienced real estate lawyer and an accountant to discuss short sale tax ramifications. This is extremely important.
- Call the lender and keep at it, till you get through to the right person.
- Have a preliminary net sheet ready, which is an estimated closing statement showing the sales price you expect to receive and all the costs of sale, including unpaid loan balances, outstanding payments due, late fees, and real estate commissions, if any.
- Once you get into an agreement to sell with a prospective buyer, keep a copy of the offer ready for the lender, accompanied with the listing agreement.
- In addition to this, keep proof of income, as well as bank assets ready.
Following the above rules will help you go through the sale smoothly. Done properly, it is going to be a win-win situation for you, the original lender, and the buyer. All the best!